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Transfer of unutilized ITC in GST cannot be denied on account of technical glitches

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Court :
Kerala High Court

Brief :
The Hon’ble High Court of Kerala in case of Union of India & Ors. v. M/s Merchem India Pvt. Ltd. [W.A. No. 570 of 2021, dated July 05, 2021] dismissed an appeal filed by the Revenue Department against the judgment passed by the Single Judge providing an opportunity of hearing to the assessee w.r.t. request for the transition of unavailed Input Tax Credit ('ITC'), on the ground that it does not warrant interference by the Court and is innocuous in nature. Held that, unutilised ITC is an asset and a statutory right in the hands of the dealer that cannot be defeated by any procedural rules on account of technical glitches. Further held that, granting an opportunity of hearing is only to enable the process of decision-making simpler and it is one of the basic principles of natural justice and such technical issues do not stand in the way of rendering justice.

Citation :
W.A. No. 570 of 2021, dated July 05, 2021

The Hon’ble High Court of Kerala in case of Union of India & Ors. v. M/s Merchem India Pvt. Ltd. [W.A. No. 570 of 2021, dated July 05, 2021] dismissed an appeal filed by the Revenue Department against the judgment passed by the Single Judge providing an opportunity of hearing to the assessee w.r.t. request for the transition of unavailed Input Tax Credit ('ITC'), on the ground that it does not warrant interference by the Court and is innocuous in nature. Held that, unutilised ITC is an asset and a statutory right in the hands of the dealer that cannot be defeated by any procedural rules on account of technical glitches. Further held that, granting an opportunity of hearing is only to enable the process of decision-making simpler and it is one of the basic principles of natural justice and such technical issues do not stand in the way of rendering justice.

Facts

M/s Merchem India Pvt. Ltd. ('the Petitioner') filed Form GSTR TRAN-1 for transferring ITC balance lying in the Petitioner’s CENVAT credit ledger as on June 30, 2017 to its Electronic Credit Ledger under the Goods and Services Tax ('GST') regime. Due to technical glitch, on September 26, 2017, the Petitioner couldn’t attempt to submit Form GSTR TRAN-1 successfully and received the communication 'processed with error'. The Petitioner filed complaint against this technical glitch but didn’t receive any reply, for which a writ petition was filed by the Petitioner.

This appeal has been filed by the Revenue Department ('the Appellant') being aggrieved by the judgment passed in the writ petition ('the Impugned judgement'), wherein the Single Judge directed the IT Redressal Committee of the GST Council to consider the Petitioner’s request for the transition of unavailed ITC in accordance with the law, after affording an opportunity of hearing to the Petitioner.

Issue

  • Whether the Petitioner is entitled for opportunity of hearing, even after delay in filing Form GST TRAN-1 due to technical glitches?

Held

The Hon’ble High Court of Kerala in WA No. 570 of 2021 dated July 05, 2021, held as under:

  • Noted that, there was an IT-related technical glitch that was noticed by the Appellant that prevented bonafide attempts to comply with the process of filing forms or returns all over the country. It was for this purpose that a Redressal Committee was formed. The Petitioner had, in fact, emailed to the help desk at GST along with the screen shot of the error pointed out, requesting their assistance to complete the filing process.
  • Observed that, there was nothing on record to suggest that the Petitioner had not made any efforts to file the Form GST TRAN-1 between the period July 01, 2017, to December 27, 2017.
  • Further noted that, the statute does not provide for any provision for lapsing of unutilized ITC for non-filing of Form GST TRAN-1. The ITC is required by the GST law to be credited to the electronic credit ledger of an assessee. Failure to credit the ITC is an infraction of Section 140(1) of the Central Goods and Services Tax Act, 2017 ('the CGST Act') and to Rule 117(3) of the Central Goods and Services Tax Rules, 2017 ('the CGST Rules').
  • Opined that, ITC is an asset in the hands of the dealer. A registered dealer had a statutory right under the VAT regime to get refund. Unutilized ITC of the erstwhile regime can be denied from being credited to the electronic credit ledger only under the contingencies mentioned in the proviso to Section 140(1) of the CGST Act, and such statutory right cannot be defeated by any procedural Rules under the GST regime and under the salutary principles enshrined in Article265 and Article 300A of the Constitution of India, 1949 ('the Constitution of India')
  • Stated that, technical glitches at the transition stage to GST Regime should not affect statutory right of registered dealers, and the Appellant should have acted with alacrity and promptness, while assisting the Petitioner rather than denying bonafide claims. The technical issues should not stand in way rendering justice.
  • Opined that, the Impugned judgement does not reflect any error of law warranting an interference by the Court and is innocuous in nature. Hence, the Appellant ought not to have pursued the same in appeal, wasting judicial time and energy.
  • Relied on the judgement passed by the Hon’ble High Court in the case of Adfert Technologies Pvt. Ltd. v. Union of India and others[CWP No. 30949 of 2018, dated November 4, 2019] wherein, the Court permitted to carry forward of unutilized CENVAT credit of duty paid denied on account of non-filing or incorrect filing of prescribed statutory Form i.e. TRAN-1 by the stipulated last date.
  • Held that, granting an opportunity of hearing is only to enable the process of decision-making simpler and it is one of the basic principles of natural justice. In the process of rendering justice, an opportunity of hearing is a basic postulate. Thus, the challenge against the opportunity of hearing directed in the impugned judgment is therefore not tenable.

Relevant Provisions

Section 140(1) of the CGST Act

'140.Transitional arrangements for input tax credit

(1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit of eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law within such time and in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:-

  • where the said amount of credit is not admissible as input tax credit under this Act; or
  • where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or
  • where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.

Rule 117(1), Rule 117(1A) and Rule 117(3) of the CGST Rules

'117. Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day

(1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of input tax credit 1[of eligible duties and taxes, as defined in Explanation 2 to section 140] to which he is entitled under the provisions of the said section:

Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.

Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.

(1A) Notwithstanding anything contained in sub-rule (1), the Commissioner may, on the recommendations of the Council, extend the date for submitting the declaration electronically in FORM GST TRAN-1 by a further period not beyond 31st March, 2020, in respect of registered persons who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom the Council has made a recommendation for such extension.

(3) The amount of credit specified in the application in FORM GST TRAN-1 shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the common portal.'

 

Bimal Jain
on 03 August 2021
Published in GST
Views : 25
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